Will Wait for SEC Final Registration Regulations to Propose New Rules
California currently has an exemption from the registration requirements for certain fund managers with more than $25M of AUM (Rule 260.204.9). Back in March California requested input from the investment management community on how they might change the registration requirements when the SEC finalizes its IA registration rules as a result of the Dodd-Frank act. At that time it was expected that the SEC would finalize its IA registration rules in time for managers to register before the July 21, 2011 registration deadline. However, the SEC subsequently indicated that it would likely extend the registration deadline until the first quarter of 2012. From this story by IA Watch, it looks like the Division of Investment Management is moving closer to officially moving the registration deadline to next year.
Because of the uncertaintly of rulemaking at the federal level, the states are left in limbo as to how to proceed with respect to fund managers who may or may not fit under certain exemptions after the federal laws
become effective (even if new federal rules are not yet effective). California is addressing this exact scenario in a letter it addressed the investment management community on May 13, 2011. The letter states:
“some uncertainty may exist about the need to become registered after July 21, 2011, for California IAs who are currently unregistered, in reliace on the existing exemption set forth in Rule 260.204.9.”
The letter goes on to state:
“The Department will soon issue emergency regulations to address this potential uncertainty. These emergency regulations will amend Rule 260.204.9, but have the effect of preserving the status quo. Therefore, California IAs who currently rely on the exemption from registration for private advisers, will be able to continue to rely on that exemption until such time as the Deparment adopts final rules related to private fund advisers.”
This is good news for current managers located in California and relying on the exemption from registration in California. We believe that other states (such as Connecticut which has a similar exemption) will soon follow California and release emergency regulations to deal with issues related to the failure of the SEC to finalize the IA registration regulations. Until the SEC does issue final regulations, it would seem that states would (or probably should) stop proposing changes to state regulations (see previous post on Massachusetts proposed changes).
Cole-Frieman & Mallon LLP is a law firm focused on the investment management industry. The firm provides investment adviser registration services to hedge funds and other investment managers. Bart Mallon can be reached directly at 415-868-5345.